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High Deductible Plans--Poor Fit for the Uninsured?

By John Reichard, CQ HealthBeat Editor

April 15, 2008 -- The high-deductible plans sold in conjunction with health savings accounts charge relatively low premiums, prompting some Republicans to pitch them as a good solution for the uninsured. But a study released Tuesday by the Kaiser Family Foundation says the uninsured often have too few assets to pay the costs of those high deductibles when illness strikes.

Even if the relatively low premiums charged for the plans are made even more attractive through federal subsidies, "many uninsured households do not have a sufficient financial cushion to absorb the potential out-of-pocket liability that can arise under these policies," said the authors of the study, Kaiser Family Foundation researchers Paul D. Jacobs and Gary Claxton.

"The study is flawed in a number of ways," commented Grace-Marie Turner. president of the Galen Institute, an Alexandria, Va.–based conservative think tank.

Health savings accounts, or HSAs, have won a strong following among Republicans because of their emphasis on promoting greater individual responsibility for financing health care costs and the incentives the accounts provide to make individuals more sensitive to the costs of care. If people are spending more of their own money for care, they'll be more sensitive to its price, HSA backers say. That in turn means providers will be more careful about what prices they charge, and that the health care market will function more like other markets do to keep costs down, they add.

Money that individuals or employers put into HSAs accumulate tax-free and can be withdrawn tax-free if used for medical purposes. Health plans sold in conjunction with the accounts have high deductibles—as high as several thousand dollars—to keep premiums lower and to make individuals more responsive to the costs of care.

The plans have proved attractive to some individual entrepreneurs and small business owners, among others, and their supporters say they'd be an attractive option for the low-income uninsured if their premium payments could be lowered through tax breaks. Both President Bush and former Massachusetts Gov. Mitt Romney have pitched proposals to subsidize premium costs, the study's authors noted.

But only one-third of households with at least two uninsured members had gross financial assets of at least $2,000, the smallest deductible available for a family health plan eligible to sold with HSAs in 2004, the study found.

The study, posted Tuesday on the Web site of the policy journal Health Affairs, found a persistently large asset gap between uninsured and insured families, even at lower income levels. In looking at people with incomes below 300 percent of the federal poverty level, the Kaiser researchers found that those with health coverage had median assets of $800 while those without coverage averaged $300.

The authors conceded that having coverage would greatly reduce the out-of-pocket financial exposure of families compared with staying uninsured. But paying the premiums involved may not seem like a wise use of limited funds to a family that would still face unaffordable medical bills if it purchased the high-deductible plans, the researchers said.

"Looking only at the size of the deductible distorts the full picture," said Turner. "If people have the choice of spending $8,000 for a comprehensive plan or $3,000 for a high-deductible plan, the premium savings need to be factored in when considering their full out-of-pocket costs."

She added that "the authors acknowledge that many employers help to fund the HSA ... in order to offset the deductible, reducing their employees' out-of-pocket exposure."

"People may decide to purchase a higher-deductible health insurance policy in order to buy a policy they can afford," Turner said. "They generally will not face the full deductible every year. But in the event of an illness or accident, they would have insurance coverage to protect them so they would not face medical bills that could run into the tens or even hundreds of thousands of dollars and could quickly bankrupt them. That is what insurance is for.

"Those with low incomes likely will need additional help in paying routine bills," she added, "but putting both problems in the same basket distorts the policy question and discourages people from fully considering all of their options."

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